(Above) 3 West Burton Place, a six-bedroom, 13-bathroom home in Chicago’s Gold Coast neighborhood, currently listing for $15.75 million. (Photo obtained from Midwest Real Estate Data/ChicagoCondoHomes.com).

By Don DeBat

7-Aug-23 – The so-called “Mansion Tax” really is a Robin Hood-style plan to steal from the rich to give to the poor, conservatives say. However, it could also hurt the city’s middle-class property owners.

Mayor Brandon Johnson’s proposal to more than triple the transfer tax – paid by buyers of residential or commercial properties priced at $1 million or more – could eventually backfire to actually reduce the city’s affordable housing stock.

Thousands of North Side two, three, and four-unit apartment buildings are owned by “Ma and Pa” middle-class people and senior citizens, who frequently charge under-market, affordable rents.

While a growing number of those properties may be valued at more than $1 million, the buildings really represent the middle-class owner’s retirement nest egg. Although the proposed tax would be paid by the buyer, essentially it could lower the seller’s sale price by tens of thousands of dollars. The Johnson proposal would hike the buyer’s transfer tax on a $1 million property to 2.65 percent – a hefty $26,500 – from the current $7,500, which is .075 percent of the sale price.

Essentially, this means the city would be taxing elderly and middle-class owners of $1 million properties $26,500 off the top. Closing the sale at a lower price would slash the seller’s retirement nest egg. It is likely that the new owner would ask double-digit rent increases to make up for the luxury tax hit, and that is the exact opposite of what Mayor Johnson wants.

The luxury tax would translate into buyers of $1 million properties having to pay $13.25 for every $500 in sales value, up from the current $3.75 in value. The $3,000 transfer tax sellers now pay per $1 million would not change under the current proposal.

The buyer’s tax bite would grow incrementally the more expensive the home or building. For example, if the sale price was $1.5 million, the transfer tax would jump to $39,750 from the current $11,250. The buyer of a $2 million mansion would pay a whopping $53,000, up from the current $15,000.

“Values of million-dollar-plus properties already have dropped 10 to 30 percent this year,” noted Jim Kinney (right), former president of Illinois Realtors Association and a veteran Gold Coast broker for Baird & Warner.

The Illinois Association of Realtors, a trade association that represents agents across the state, believes that the luxury tax would further lower prices and reduce volume in the high-end market.

Upscale lakefront neighborhoods – such as Edgewater, Gold Coast, Lakeview, Lincoln Park, Near North Side, and Old Town – likely would suffer losses in value if the luxury tax is enacted.

Under Mayor Johnson’s Bring Chicago Home proposal, 100 percent of an estimated $163 million in additional buyer taxes reportedly would be earmarked for the fight against homelessness over 12 months.

(Left) 65 East Goethe Street, Unit 3, a seven-bedroom, 11-bathroom home in the Gold Coast available for $15.5 million (Midwest Real Estate Data).

That’s on top of the roughly $62.6 million in annual transfer taxes that million-dollar-plus sales have actually pumped into city coffers under the existing tax structure in the past year.

Mayor Johnson’s team has signaled it no longer will seek to enact its luxury tax proposal as a state law through the Illinois General Assembly. Instead, Johnson’s goal is for the luxury tax to be approved by the Chicago City Council this fall.

Then, in 2024, the proposal would be placed on the March Presidential Primary Election ballot as a voter referendum. So, the earliest the luxury tax could go into effect is spring of 2024.

11th Ward Alderman Nicole Lee told the Chicago Tribune she is urging City Council members to ensure that the tax would not apply to the sale of multi-unit apartment buildings with affordable rentals. “I want to make sure that we’re not inadvertently causing a reduction in naturally occurring affordable housing with this transfer tax,” said Lee (right).

Kinney believes buyers will ask: What does the Mansion Tax do to my choices? A buyer either pays the tax in the city or moves to a North Shore suburb where there is no Mansion Tax and the schools are infinitely better.

“High taxes and crime already are causing people to vote with their feet. Some 60,000 people have left Illinois in recent years,” Kinney said.

If the City Council passes the Mansion Tax proposal, and it is approved via referendum next spring, experts say Cook County Assessor Fritz Kaegi may have to institute a new model for assessing million-dollar-plus homes to compensate for falling market values and the hefty burden of the added layer of taxes.

A recent count showed there are 6,139 homeless people in Chicago, according to the Chicago Department of Family and Support Services. That number includes 2,196 migrants. The U.S. Department of Housing and Urban Development estimates Chicago’s homeless population is closer to 5,300.

Obviously, these totals do not include the thousands of asylum-seekers shipped to Chicago from Texas and now living temporarily in Chicago police stations, on the Wright Junior College campus and in hotels such as The Inn of Chicago on East Ohio Street in Streeterville. Broadway Armory Park Fieldhouse on North Broadway Street in Edgewater also has been suggested as a new immigrant haven.